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Managing Personal Automobile Insurance Risks Following Death

April 2008

When a married named insured on a personal
auto policy dies, the coverage and rights of the policy usually transfer automatically
to the spouse. But what about an unmarried named insured? Who has rights on
this policy? Is the common practice use of the car by family members covered?
If not, what strategies should be adopted to avoid uninsured losses?

Benjamin S., age 25 with a clean driving record, lost his grandmother, Maria
(a widow), in October. The executor of Maria's estate, Ben's dad David, took
possession of Maria's car with the intent to eventually sell it off as part
of her estate. Temporarily, also in October, David gave Ben permission to drive
the car to and from work. In November, Ben caused an accident and was sued by
the other driver. Maria's auto policy was paid to the December 12 renewal date.
Were David and Benjamin covered by Maria's personal auto policy through ABC
Insurance Company?

Not according to the adjuster. The adjuster denied the claim based on language
in ABC's and most personal auto insurance policies that, in the case of the
death of the policyholder, coverage is provided for just two people: (1) the
surviving spouse (Maria was a widow); and (2) Maria's legal representative,
her son David. But, coverage only applied to the representative's
legal responsibilities to maintain and use
Maria's vehicle. Coverage does not apply to any other driver nor for anyone's
personal use, including David's!

David had no authority under the policy to loan the car to anyone, including
his son Ben. And driving the car to and from work is not "maintaining or using"
the car for "legal responsibility" purposes. Thus, the adjuster denied the claim.
Neither the driver, Ben, nor his use was covered under Maria's auto policy.

Most personal auto policies have one other restriction. Coverage will only
be provided until "the end of the policy period." There is no minimum number
of days. So, in this case study, if Maria died on December 11, all coverage
would cease at the end of that day (i.e., 12:01 a.m. on December 12). This hardly
seems reasonable.

What Is "Legal Responsibility To Maintain and Use" Your Covered Auto?

"Legal responsibility to maintain and use" refers to coverage to drive the
car to repair shops, oil changes, tire dealers, etc. A legal representative
using the car for personal use is not permitted. Nor does the policy allow the
legal representative to let others drive the car.

The personal auto policy contains overly restrictive coverage limitations
that aren't consistent with what happens in the real world. In practice, when
someone dies, it's common for surviving family members to use the deceased's
car for personal use until the car is sold as part of the estate resolution.
Not only does the deceased's insurer not cover such use, but even the personal
auto policies of family members won't either! Non-owned auto coverage specifically
excludes vehicles "furnished or available for your regular use." Those policies
also exclude your legal liability for damage you cause to the deceased's car
under the "care, custody, and control" exclusion.

Who Needs Coverage?

Following a death with no surviving spouse, the following need coverage for
the ownership of the deceased's vehicle until it is sold: the deceased's estate,
the legal representative of the estate, and any possible drivers. If the vehicle
is new enough to need collision and comprehensive coverage, the ownership interest
of the estate needs to be protected for vehicle damage or theft as well.

My Risk Management Advice

If you are the agent for the deceased and want to broaden the coverage for
the legal representative of the deceased, here is what I recommend that you
do to amend the deceased's policy so coverage will be provided. Change the named
insured on the deceased's policy at death to the deceased's estate (as the owner)
and to the legal representative of that estate jointly. Use the legal representative's
mailing address for the policy. That way, the legal representative can use the
vehicle personally and, as co-named insured, can grant permissive use to others
to use the vehicle. The estate is protected as both the owner of the vehicle
for liability as well as for collision and comp losses. This change also ensures
that the coverage won't end at the next renewal date.

If you are not the agent for the deceased but are the agent for someone who
has regular access to or use of the vehicle—either the legal representative
or a different operator—add an "extended non-owned" endorsement to their personal
auto policy (PAP), voiding the regular use exclusion. Also, this would provide
the necessary underlying insurance for follow form umbrella coverage.

If the car is given to a family member who will be inheriting the car after
probate, such as the son or grandson, and if you are the agent already insuring
this individual, you can add the deceased's vehicle to your client's auto policy
and add the estate of the deceased as both an additional insured for liability
and loss payee for physical damage (similarly to how you would insure a leased
car). And once the title transfers to your client, you can remove the additional
interest endorsements.

I have recapped the risks and my recommendation for managing each risk in
Table 1.

Conclusion

The key to personal risk management is first and foremost to know the coverage
pitfalls well enough to be able to identify where someone may be exposed to
an uninsured loss under their insurance program. In this particular case, knowing
the coverage pitfalls facing the survivors of the deceased's personal auto policy
is key to developing a strategy to circumvent those limitations so there will
be coverage.

Jack Hungelmann's book Insurance for Dummies,
contains much of this information and is available at your favorite bookstore
or
online. For more information on his risk management and insurance business,
go to www.JackHungelmann.com
where you can check out sample newsletters, brochures, other articles written
on various issues. For background information, see Mr. Hungelmann's
biography.

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